CLUBHOUSE MEDIA GROUP, INC. Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this annual
report, including, without limitation, statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. When used in
this annual report, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or the Company's
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors detailed in our filings with the
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this annual report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are an influencer-based social media firm and digital talent management agency. Our Company offers management, production and deal-making services to our handpicked influencers, a management division for individual influencer clients, and an investment arm for joint ventures and acquisitions for companies in the social media influencer space. Our management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.
Through our subsidiary, West of
Recent Developments Marenzi Resignation
On
Fast Capital Securities Purchase Agreement and Convertible Note
On
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The Fast Capital Note bears interest at a rate of 10% per annum and matures on
Prepay Date Prepay Amount On or before 30 days 115% of principal plus accrued interest 31 - 60 days 120% of principal plus accrued interest 61 - 90 days 125% of principal plus accrued interest 91 - 120 days 130% of principal plus accrued interest 121 - 150 days 135% of principal plus accrued interest 151 - 180 days 140% of principal plus accrued interest
The Fast Capital Note may not be prepaid after the 180th day.
The conversion price of the Fast Capital Note equals 70% of the lowest trading price of the Company's common stock for the 20 prior trading days, including the day upon which a notice of conversion is delivered.
Sixth Street Securities Purchase Agreement & Convertible Note
On
The Sixth Street Note bears interest at a rate of 10% per annum and matures on
Sixth Street has the right from time to time, and at any time during the period
beginning on the date that is 180 days following
The conversion price of the Sixth Street Note equals the lesser of the Variable
Conversion Price (as hereinafter defined) and
Tiger Trout Note Amendment
On
On
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The parties further agreed that to the extent the indebtedness under the Tiger
Trout Note has not been earlier repaid or converted to common stock as set forth
therein, in the event that the Company completes a firm commitment underwritten
public offering of its common stock that results in the common stock being
successfully listed on the Nasdaq Global Market, the Nasdaq Capital Market, the
Except as set forth in the Tiger Trout Note Amendment, the terms of the Tiger Trout Note remain in full force and effect.
ProActive Note Amendment
On
On
The parties further agreed that to the extent the indebtedness under the
ProActive Note has not been earlier repaid or converted to common stock as set
forth therein, in the event that the Company completes a firm commitment
underwritten public offering of its common stock that results in the common
stock being successfully listed on the Nasdaq Global Market, the Nasdaq Capital
Market, the
Except as set forth in the ProActive Note Amendment, the terms of the ProActive Note remain in full force and effect.
ONE44 Securities Purchase Agreement & Convertible Note
On
The ONE44 Note bears interest at a rate of 4% per annum and matures on
Prepay Date Prepay Amount ? 60 days 120% of principal plus accrued interest 61-120 days 130% of principal plus accrued interest 121-150 days 140% of principal plus accrued interest 151-180 days 150% of principal plus accrued interest
The ONE44 Note may not be prepaid after the 180th day.
ONE44 is entitled, at its option, at any time after the sixth monthly anniversary of cash payment, to convert all or any amount then outstanding under the ONE44 Note into shares of common stock at a price per share equal to 65% of the average of the three lowest daily VWAP of the Company's common stock for the 20 prior trading days, subject to a 4.99% equity blocker and subject to the terms of the ONE44 Note.
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If an Event of Default (as defined in the ONE44 Note) occurs, unless cured within five days or waived, ONE44 may consider the ONE44 Note immediately due and payable and interest will accrue at a rate of 24% per annum, in addition to certain other remedies.
Coventry Securities Purchase Agreement, Promissory Note & Restricted Stock Issuance
On
The Coventry Note bears interest at a rate of 10% per annum, with guaranteed
interest (the "Guaranteed Interest") of
Any or all of the principal amount and the Guaranteed Interest may be prepaid at any time and from time to time, in each case without penalty or premium.
If an Event of Default (as defined in the Coventry Note) occurs, consistent with the terms of the Coventry Note, the Coventry Note will become convertible, in whole or in part, into shares of the Company's common stock at Coventry's option, subject to a 4.99% equity blocker (which may be increased up to 9.99% by Coventry). The conversion price is 90% of the lowest per-share trading price during the 10-trading day period before conversion.
In addition to certain other remedies, if an Event of Default occurs, consistent with the terms of the Coventry Note, the Coventry Note will bear interest on the aggregate unpaid principal amount and Guaranteed Interest at the rate of the lesser of 18% per annum or the maximum rate permitted by law.
Labrys Note Amendment
On
On
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Ben-Yohanan Employment Agreement
On
(i) If the Company's Board determines that the Company has sufficient cash on
hand to pay all or a portion of the Optional Portion in cash, such amount
shall be paid in cash.
(ii) If the Board determines that the Company does not have sufficient cash on
hand to pay all of the Optional Portion in cash, then the portion of the
Optional Portion which the Board determines that the Company has sufficient
cash on hand to pay in cash will be paid in cash, and the remainder (the
"Deferred Portion") will either:
a. be paid at a later date, when the Board determines that the Company has
sufficient cash on hand to enable the Company to pay the Deferred Portion; or
b. will not be paid in cash - and instead, the Company will issue shares of
Company Common Stock equal to (A) the Deferred Portion, divided by (B) the
VWAP (as defined in the employment agreement) as of the date of issuance of
such shares of Company Common Stock.
In addition, pursuant to the employment agreement, Mr. Ben-Yohanan is entitled to be paid discretionary annual bonuses as determined by the Board, and is also entitled to receive fringe benefits, such as, but not limited to, reimbursement for reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel, vacation days, and certain insurances.
The initial term of the employment agreement is one year from
Mr. Ben-Yohanan's employment with the Company shall be "at will," meaning that either Mr. Ben-Yohanan or the Company may terminate Mr. Ben-Yohanan's employment at any time and for any reason, subject to certain terms and conditions.
The Company may terminate the employment agreement at any time, with or without "cause", as defined in the employment agreement and Mr. Ben-Yohanan may terminate the employment agreement at any time, with or without "good reason", as defined in the employment agreement. If the Company terminates the employment agreement for cause or Mr. Ben-Yohanan terminates the employment agreement without good reason, Mr. Ben-Yohanan will be entitled to be paid any unpaid salary owed or accrued, including the issuance of any shares of Company Common Stock owed or accrued (as compensation) as of the termination date. In the event that there was any Deferred Portion which had been agreed to be paid in cash, such Deferred Portion instead will be paid in shares of Company Common Stock as though such amount had been agreed to be paid via the issuance of shares of Company Common Stock. Mr. Ben-Yohanan will also be entitled to payment for any unreimbursed expenses as of the termination date. However, any unvested portion of any equity granted to Mr. Ben-Yohanan will be immediately forfeited as of the termination date.
If the Company terminates the employment agreement without cause or Mr. Ben-Yohanan terminates the employment agreement with good reason, Mr. Ben-Yohanan will be entitled to receive the same compensation (unpaid accrued salary and unreimbursed expenses), and, in addition, will be entitled to receive, in one lump sum, the remainder of Mr. Ben-Yohanan's annual salary that has not yet been paid as of the date of the termination - either in cash, or in shares of Company common stock. Further, any equity grant already made to Mr. Ben-Yohanan shall, to the extent not already vested, be deemed automatically vested.
2022 Equity Incentive Plan
On
A total of 26,000,000 shares of the Company's common stock are authorized for issuance pursuant to the 2022 Plan.
Additionally, if any award issued pursuant to the 2022 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2022 Plan, or, with respect to restricted stock, restricted stock units ("RSUs"), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2022 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). Shares that have actually been issued under the 2022 Plan under any award will not be returned to the 2022 Plan and will not become available for future distribution under the 2022 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2022 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2022 Plan. To the extent an award under the 2022 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2022 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2022 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under the 2022 Plan in accordance with the foregoing.
Increase in Authorized Shares and Other Articles Amendments
On
In addition, the Amendment had the effect of making certain changes with respect to the vote required for any subsequent changes to the numbers of authorized shares of classes or series of the Company's stock. As amended, the Articles provide that, except as otherwise required by the Nevada Revised Statutes, the Articles, or any designation for a class of preferred stock, (i) all shares of the Company's capital stock will vote together as one class on all matters submitted to a vote of the Company's stockholders, and (ii) the affirmative vote of a majority of the voting power of all outstanding shares of voting stock entitled to vote in connection with the applicable matter will be required for approval of such matter. For the avoidance of doubt, the intent of the provisions is, and the operation of the provisions will be, that, without limitation, (i) in the event that the vote of the Company's shareholders is otherwise required by the NRS, the number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company's stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required; and (ii) in the event that the vote of the Company's shareholders is otherwise required by the NRS, unless otherwise set forth in a certificate of designations for the applicable class of preferred stock, the number of authorized shares of any class of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Company's stock entitled to vote irrespective of Section 78.2055 or Section 78.207 of the NRS, with no vote of any holders of a particular class of stock, voting as a separate class, being required. None of these provisions will otherwise affect or limit the power of the Board to change the number of shares of a class or series of authorized stock by increasing or decreasing the number of authorized shares of the class or series and correspondingly increasing or decreasing the number of issued and outstanding shares of the same class or series held by each shareholder without a vote of the shareholders, as set forth in Section 78.207 of the NRS.
Except as specifically required by the NRS or as set forth in any designation for a class of preferred stock, the holders of each class of the Company's stock are specifically denied the right to vote as a separate class on any proposed Articles amendment that would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares.
The Company's Board of Directors approved the Amendment on
46 Results of Operations
For the Three Months Ended
Net Revenue
Net revenue was
Cost of Goods Sold
Cost of goods sold was
Gross Profit
Gross profit was
Operating Expenses
Operating expenses for the three months ended
Non-cash operating expenses for the three months ended
Other (Income) Expenses
Other (income) expenses for the three months ended
Other expenses for the three months ended
Net Loss
Net loss for the three months ended
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Liquidity and Capital Resources
Operating Activities
Net cash used in operating activities for the three months ended
Investment Activities
Net cash used in investing activities for the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
Impact of COVID-19 on the Company
Due to the digital/remote nature of the Company's business, COVID-19 has had, and is expected to have, only a limited effect on the Company's operations.
Going Concern
The Company adopted the
The accompanying unaudited financial statements have been prepared assuming that we will continue as a going concern. While the Company is attempting to generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate revenues. The Company will require additional cash funding to fund operations. Therefore, the Company concluded there was substantial doubt about the Company's ability to continue as a going concern.
To fund further operations, the Company will need to raise additional capital. The Company may obtain additional financing in the future through the issuance of its common stock, or through other equity or debt financings. The Company's ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, the Company will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and the Company's ability to achieve its strategic objective. There can be no assurance that financing will be available on acceptable terms, or at all. The financial statements contain no adjustments for the outcome of these uncertainties. These factors raise substantial doubt about the Company's ability to continue as a going concern and have a material adverse effect on the Company's future financial results, financial position and cash flows.
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Equity Purchase Agreement and Registration Rights Agreement
On
In exchange for Peak One entering into the Equity Purchase Agreement, the
Company agreed, among other things, to (A) issue
The obligation of Peak One to purchase the Company's common stock begins on the date of the Equity Purchase Agreement, and ends on the earlier of (i) the date on which Peak One has purchased common stock pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) 24 months after the date of the Equity Purchase Agreement, (iii) written notice of termination by the Company to Peak One (which shall not occur during any Valuation Period or at any time that Peak One holds any of the Put Shares), (iv) the Registration Statement is no longer effective after the initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary case or any person commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors (the "Commitment Period").
During the Commitment Period, the purchase price to be paid by Peak One for the
common stock under the Equity Purchase Agreement shall be 95% of the Market
Price, which is defined as the lesser of the (i) closing bid price of the common
stock on the trading day immediately preceding the respective Put Date (as
defined in the Equity Purchase Agreement), or (ii) lowest closing bid price of
the common stock during the Valuation Period (as defined in the Equity Purchase
Agreement), in each case as reported by
The number of Put Shares to be purchased by Peak One shall not exceed the number of such shares that, when aggregated with all other shares of common stock then owned by Peak One beneficially or deemed beneficially owned by Peak One, would result in Peak One owning more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable pursuant to a Put Notice.
In accordance with that certain Registration Rights Agreement, the Selling
Securityholders are entitled to certain rights with respect to the registration
of the Put Shares and Commitment Shares issued in connection with the Equity
Purchase Agreement (the "
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Convertible Promissory Notes
See footnotes #9 in the notes to the unaudited consolidated financial statements.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in
Reverse Merger Accounting
The Merger was accounted for as a reverse-merger and recapitalization in
accordance with GAAP. WOHG was the acquirer for financial reporting purposes and
Lease
On
As described under "Recently Adopted Accounting Pronouncements," below, the
primary impact of adopting ASC 842 for the Company was the recognition in the
consolidated balance sheet of certain lease-related assets and liabilities for
operating leases with terms longer than 12 months. The Company elected to use
the short-term exception and does not records assets/liabilities for short term
leases as of
The Company's leases primarily consist of facility leases which are classified
as operating leases. The Company assesses whether an arrangement contains a
lease at inception. The Company recognizes a lease liability to make contractual
payments under all leases with terms greater than twelve months and a
corresponding right-of-use asset, representing its right to use the underlying
asset for the lease term. The lease liability is initially measured at the
present value of the lease payments over the lease term using the collateralized
incremental borrowing rate since the implicit rate is unknown. Options to extend
or terminate a lease are included in the lease term when it is reasonably
certain that the Company will exercise such an option. The right-of-use asset is
initially measured as the contractual lease liability plus any initial direct
costs and prepaid lease payments made, less any lease incentives. Lease expense
is recognized on a straight-line basis over the lease term. All leases are
terminated since
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Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company's leased right-of-use assets primarily relate to facility leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group.
Revenue Recognition
In
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from providing temporary and permanent staffing solutions and sale of consumer products.
Managed Services Revenue
The Company generates revenue from its managed services when a marketer (typically a brand, agency or partner) pays the Company to provide custom content, influencer marketing, amplification or other campaign management services ("Managed Services").
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms, or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. The agreement typically provides for either a non-refundable deposit, or a cancellation fee if the agreement is canceled by the customer prior to completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of: (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels; and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer's brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. The Company allocates revenue to each performance obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied at the time the customer receives the benefits from the services.
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Based on the Company's evaluations, revenue from Managed Services is reported on
a gross basis because the Company has the primary obligation to fulfill the
performance obligations and it creates, reviews and controls the services. The
Company takes on the risk of payment to any third-party creators and it
establishes the contract price directly with its customers based on the services
requested in the statement of work. The contract liabilities as of
Subscription-Based Revenue
The Company recognize subscription-based revenue through its social media website at Honeydrip.com, which allow customers to visit the creators personal page over the contract period without taking possession of the products or deliverables, are provided on either a subscription or consumption basis. Revenue provided on a subscription basis is recognized ratably over the contract period and revenue provided on a consumption basis is recognized when the subscriber paid and received their access to the content.
Software Development Costs
We apply ASC 350-40, Intangibles-Goodwill and
Goodwill Impairment
We test goodwill at least annually for impairment at the reporting unit level. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
For other intangible assets that are not deemed indefinite-lived, cost is
generally amortized on a straight-line basis over the asset's estimated economic
life, except for individually significant customer-related intangible assets
that are amortized in relation to total related sales. Amortizable intangible
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable. In these
circumstances, they are tested for impairment based on undiscounted cash flows
and, if impaired, written down to estimated fair value based on either
discounted cash flows or appraised values. The Company impaired
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
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Recoverability of long-lived assets to be held and used is measured by comparing
the carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the assets. Fair value is generally determined using the asset's
expected future discounted cash flows or market value, if readily determinable.
Based on its review, the Company believes that, as of
Income Taxes
The Company accounts for income taxes using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law. For deferred tax assets, management evaluates the probability of realizing the future benefits of such assets. The Company establishes valuation allowances for its deferred tax assets when evidence suggests it is unlikely that the assets will be fully realized.
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. Income tax positions that previously failed to meet the more likely than not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company classifies potential accrued interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations and comprehensive income (loss) as income tax expense.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, other receivable, note receivable, other current assets, accounts payable, and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value.
The Company utilizes the methods of fair value ("FV") measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level 3 inputs.
The Company used Level 3 inputs for its valuation methodology for the derivative
liabilities for conversion feature of the convertible notes in determining the
fair value the weighted-average Binomial option pricing model following
assumption inputs. The fair value of derivative liability as of
53 Stock-based Compensation
Stock-based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee's requisite service period (generally the vesting period of the award). Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Derivative Instruments
The fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under other (income) expense.
Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include:
a. affiliates of theCompany; b . entities for which investments in their equity securities would be required,
absent the election of the FV option under the FV Option Subsection of Section
825-10-15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can
significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
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New Accounting Pronouncements
In
On
In
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